QEP Global Equity Team, Schroder Investment Management Australia Ltd

Size: px
Start display at page:

Download "QEP Global Equity Team, Schroder Investment Management Australia Ltd"

Transcription

1 Schroders Smart Beta QEP Global Equity Team, Schroder Investment Management Australia Ltd Executive summary Smart beta may be the latest trend in the investment community but the concept is far from revolutionary. Smart beta simply takes the ideas of style investing and packages these ideas into an index-like product. Its recent popularity, however, has probably more to do with the growing awareness of the shortcomings of traditional indices rather than a resurgence of interest in style based investing. The smart beta approach does address some of the issues with market capitalization weighted benchmarks that Schroders has been highlighting for many years. Some of the market capitalization benchmark issues include: 1. Anti-Value: Market capitalization weighted indices are a buy-and-hold strategy that are akin to momentum investing that incorporate an anti-value bias due to their inability to trade out of expensive and into cheap stocks. 2. Excessive concentration: The momentum bias in market capitalization weighted indices can result in investors becoming overly concentrated in stocks, sectors, countries and/or themes that have outperformed the market in the recent past. At the very least, this can lead to a less diversified and riskier portfolio whilst, at the extreme, it can amplify market fads such as the bubble in the Japanese stock market in the late 1980s or the Technology bubble of Narrow or inefficient use of the universe: By arbitrarily restricting the investment universe based on market capitalization, investors artificially narrow their opportunity set or crowd out the ability of smaller cap stocks to contribute meaningfully to performance, thereby introducing inefficiency when attempting to maximize returns. Smart beta strategies only really address the first issue of market capitalization benchmarks, that is, they tend to reduce the anti-value bias. However, the automated nature of smart beta investment strategies means that these indices can lead to highly concentrated portfolios in one theme. Thus the set and forget rules based strategy can increase the risk of the investment because it ignores the changing nature of risk through the economic cycle. Further, many of the smart beta offerings limit the investment opportunity set to those companies currently in the main market capitalization index maintaining a bias to larger capitalization stocks whilst ignoring more investment opportunities outside of the index. We believe that when constructing an investment portfolio addressing all three issues leads to better outcomes for investors. As with any investment strategy, especially rules based approaches, investors should clearly understand the stock level impacts of what they are investing in particularly with respect to valuation, turnover and concentration. Introduction Smart beta is the latest trend in the investment community but the concept is far from revolutionary. Smart beta simply takes the ideas of style investing and packages these ideas into an index product. In this article we will outline what smart beta investing is and how it is constructed to address some of the issues that have been uncovered with market capitalization benchmark investing. We then explore in more detail the benefits of using a non-market capitalization approach and how this approach can lead to better outcomes for investors. Finally, we highlight how smart beta strategies only partially address the market capitalization issues and discuss why constructing an investment portfolio addressing all three issues will lead to better outcomes for investors. What is smart beta? Smart beta is the latest investment trend based on style investing whereby specific investment ideas are implemented in a transparent rules-based product that is non-market capitalization weighted. Well-known examples of smart beta products include: RAFI Fundamental Index, MSCI Value Weighted Index, MSCI Issued by Schroder Investment Management Australia Limited 123 Pitt Street Sydney NSW 2000 ABN Australian Financial Services Licence

2 Minimum Volatility and FTSE EDHEC-Risk Efficient index series. The concept of style investing is not a new one, having been documented and incorporated into investors portfolios regularly since the 1970 s using various investment ideas such as small-capitalization investing. In fact, it could be argued that style investing goes back as far as the 1930 s when Ben Graham first discussed a value approach to investing. What is new about smart beta then? There are two significant differences between style investing and smart beta investing. First, smart beta investing moves away from a market capitalization weighting scheme and uses alternative (non-market capitalization) weighting schemes. Second, smart beta investment products are packaged using transparent rules that determine how the product is rebalanced. This means that the smart beta product can be tracked through exchange traded funds (ETF s) and as such, they are often viewed as another form of passive investing, which would be incorrect. Only the market-capitalization portfolio can be held by all investors, and all other approaches are forms of active management that require regular re-balancing, thereby incurring transaction costs. Smart beta indexing also masks inherent biases and concentration into investment themes which may result from these simple (transparent) rules. The result is that investors should closely monitor these smart beta products to ensure the risks being taken are appropriate, and that they maintain positions to match expectations. Exploring the benefits of non-capitalization weighting approaches In constructing unconstrained global equity portfolios, we advocate for a non-capitalisation weighting approach because of the inherent problems that market capitalization weighting schemes experience, including: Anti-value: A market capitalization weighting scheme is a buy and hold strategy that funnels investors into expensive/momentum stocks that are assigned higher weights (due to their higher market share) while downweighting cheaper stocks. This is akin to a momentum strategy that buys high and sells low. In part, the performance drag from holding the largest stocks that have gone up in price and has become more expensive is the other side of the well documented small-capitalization effect. As we show in Exhibit 1, historically the largest stocks in the index (i.e. National Champions ) underperform compared to the rest of the index. Exhibit 1: The underperformance of National Champions 12 Growth of $ MSCI World Top 3 National Champions MSCI World Equal Weighted (EW) Source: Global Financial Data, QEP Schroders, Gross returns in USD Excessive concentration: Market capitalization weighted indices can lead to highly concentrated portfolios when particular stocks, sectors, and/or countries are thought to be entering a sustained growth period resulting in stock prices being pushed higher and valuations becoming expensive. Exhibit 2 highlights two such episodes; first the late 1980 s when Japanese stocks comprised 44% of the MSCI world index. Second, during the dot-com bubble of the late 1990 s where we saw technology stocks comprising approximately 36% of the Schroder Investment Management Australia Limited 2

3 index. Following these periods both investment themes underperformed compared to the rest of the market for substantial periods or time, resulting in losses for investors that remained invested in these themes. Exhibit 2: Weight of technology or Japanese stocks in the MSCI World index through time Technology/Telecoms bubble of 1999/2000 Japan Stock Market bubble of the late 1980 s % Weight 5 3 % Weight Year Source: Global Financial Data, MSCI, QEP Schroders Year Concentration can also appear at the stock level. As exhibit 3 reveals, it is not unusual for the stock markets of individual countries to be dominated by a single stock or a handful of stocks that reduces diversification and increases the potential for volatility. Exhibit 3: Percentage weight of largest companies by country to total country market capitalization 10 8 Largest stock "National Champion" Top 3 National Champions % Weight 6 UNITED STATES JAPAN UNITED KINGDOM CANADA BRAZIL GERMANY FRANCE AUSTRALIA HONG KONG SINGAPORE TAIWAN SOUTH KOREA ITALY SWITZERLAND SPAIN Such issues of concentration are however not solely the domain of market cap weighted indices. Smart beta or alternative methodologies can also result in very concentrated portfolios. We show in exhibit 4 below the concentration of a number of alternative index approaches. Schroder Investment Management Australia Limited 3

4 Exhibit 4: Asset allocation of alternative beta approaches Source: Global Financial Data, MSCI, QEP Schroders, Societe Generale, As at 31 August 2013 Narrow/inefficient investment universe: By restricting the portfolio to a narrow universe based only on market capitalization investors are unnecessarily limiting their investment opportunity set. This reduces the return potential of the portfolio by only investing in larger stocks. Some index providers have increased coverage to include a larger number of stocks, but still use market capitalization as their primary threshold to determine membership of these indexes, resulting in these portfolios being weighted heavily towards the mega-large capitalization stocks. This strategy reduces the return potential that smaller companies can offer and is an inefficient use of the investment universe. Exhibit 5: Distribution of size categories in two market capitalization indexes 8 MSCI World 8 MSCI World IMI 6 6 Mega-Cap Large-Cap Mid-Cap Weight in Index Proportion by Number Mega-Cap Large-Cap Mid-Cap Small/Micro Weight in Index Proportion by Number Issues that smart beta addresses Any measurable non-capitalization weighting scheme works to remove the anti-value bias and the return drag from mega stocks provided it involves some degree of rebalancing back to a value not determined by price movements. This weighting mechanism can be anything that is quantifiable but the simplest form of a noncapitalization weighted index is one that applies equal weights to each stock. As such no additional information is required for the index aside from the list of stocks and a rebalance frequency. Other examples of metrics used to weight stocks within smart beta indices include; fundamental weighting whereby the size of a company s Schroder Investment Management Australia Limited 4

5 assets or earnings are used to derive a weighting scheme; whilst minimum volatility indices are rebalanced back to a set of stock weights that would create a low volatility portfolio. If a stock performs very well its weight will increase, but unlike a market capitalization weighted index, the stock s weight adjusts back to its starting weight once the smart beta index is rebalanced (typically 2 or 4 times a year). It is this rebalancing effect that is important rather than the actual choice of weighting scheme as it helps investors avoid chasing the most overvalued companies. To illustrate this point in exhibit 6 we plot the MSCI World index and two additional indices derived from it. The first index uses the same constituents of the MSCI World index but applies equal weights to each stock (equal weighted). The second measure adopts an arbitrary weighting scheme, in this case we weights stocks by the length of a company s name, that is the stocks with the longest names gets the largest weights. The choice of weighting scheme may seem esoteric but it means that the weighting scheme doesn t contain a performance bias (e.g. through investing in cheaper or lower volatility stocks). Exhibit 6: Performance enhancement from non-capitalization weighting schemes 1, MSCI World: Equal Weighted Growth of $ MSCI World: Reweighted by Length of Company Name MSCI World Using these simple weighting schemes we observe that moving away from a market capitalization weighting scheme leads to higher performance over the 25 year time-period analyzed. The only time-period where the non-capitalization indices lagged behind the MSCI World index was during the large capitalization bubble of the late 1990s, although this quickly reverted in the early 2000s. In other words, investors could have materially improved their long run performance by simply reweighting the same stocks back to a non-price sensitive starting point. Essentially, smart beta investing is rather simple. There is no hidden alpha that these approaches have managed to extract that has not been available to active management for decades. Whilst we support the fact that smart beta approaches help to remove some of the large capitalization anti-value bias inherent in traditional indices, we feel that investors should be more ambitious when looking to maximize the strategic opportunities available to them. The problems with transparent rules-based approaches Historically, style investing has been considered to be an active investment approach with manager oversight. However, smart beta investment products are predominantly packaged using a transparent rules-based index approach. Such passive transparent rules-based approaches use automated responses to the market with minimal (or no) human oversight and can result in concentrations in the portfolio that an investor may not be comfortable with. By marketing smart beta as an index like product investors may think that they don t need to apply the same due-diligence that they would to an active manager. Unfortunately this is not the case because automated rules can lead to outcomes that the investor may not expect and build up unexpected risks in their portfolio. Schroder Investment Management Australia Limited 5

6 An additional concern with automated processes and concentration is that there is no human managing the process to help navigate the portfolio through the economic cycle. This can lead to sudden and dramatic changes in portfolio characteristics at rebalance dates, which would be considered unacceptable in any actively managed strategy and alter the investment themes the portfolio is exposed to. Exhibit 7: Change in MSCI AC Momentum Index country and sector allocations 8 Regions/Country Allocation Oct-13 Nov-13 8 Sector Allocation Oct-13 Nov United States Japan Pacific ex Japan Other Cyclicals Staples & Health Care Financials Other Sectors By way of an example, exhibit 7 shows the change in allocation for the MSCI AC Momentum Index from the end of October 2013 to November 2013 when the index is rebalanced. There is a significant shift in the investment strategy on the rebalance day, including a rise in the weight allocated to US stocks from 37% to more than 6, and a subsequent down-weighting of Japanese stocks from 34% to less than 14%. In terms of sectors the allocation to relatively defensive sectors of Health Care & Staples falls from 41% to less than 14%, while exposure to more cyclical sectors increase from 25% to over 5 of the portfolio. Such a rapid change in allocation has dramatically changed the portfolio characteristics and the drivers of the portfolios performance going forward. Large shifts in allocation were also observed in RAFI Fundamental Indexes around the Global Financial Crisis. At the height of the crisis the RAFI Fundamental index rebalanced into the financial sector increasing the weight to financials by over 6% in one day. This trade reversed the next rebalance with the weight to financials dropping by over 6%. The observed change in portfolio allocation also highlights the consequence of there being no human oversight managing the process, helping navigate the portfolio through the economic cycle. Portfolio management involves skillful portfolio construction, efficient implementation and risk management, which delegating your investment to an automated process can not achieve. This is particularly evident when we examine exhibit 8 which shows the annual returns of a range of alternative smart beta indices relative to the MSCI World index in USD. Schroder Investment Management Australia Limited 6

7 Exhibit 8: Relative returns in USD vs MSCI World Index Source: MSCI, Bloomberg, FSTE as at 31 October The indices used are MSCI World Equally Weighted Index, MSCI Minimum Volatility Index, MSCI World High Dividend Yield Index, FTSE Developed ActiveBeta Momentum Index, FTSE RAFI Developed 1000 Index, MSCI World Value Weighted Index, MSCI World Quality Index, Societe Generale Quality Income Index. We can see that the dispersion in annual returns across these different strategies can be quite large and prone to sudden reversals. In investing in these strategies it is important that investors understand the key driver of returns and particularly the valuation of stocks in that strategy. Another concern is that many of the smart beta investment providers restrict the investment opportunity set to comprise only the same small subset of stocks that the main market capitalization index that they are following utilize. Typically the main MSCI non-capitalization weighted indices start with the appropriate MSCI index as their universe, and then re-weight these constituents following the smart beta strategy rules. Alternatively some smart beta investment providers do expand their universe but use the universe inefficiently. This limits the scope for potential investment returns that investors could access from broadening their investment universe and may increase the risk of the portfolio by reducing the diversification benefits that a larger universe could provide. Exhibit 9 highlights two smart beta products: the MSCI AC Momentum and MSCI Minimum Volatility and compares them to the MSCI World Index. The graph shows that the weight to mid-capitalization stocks is still very small with no more than 5% of the portfolio being held in this area of the market in the most diversified product MSCI Minimum Volatility. Exhibit 9: Distribution of size categories of MSCI AC Momentum and MSCI Minimum Volatility 8 6 Mega-Cap Large-Cap Mid-Cap MSCI World MSCI AC Momentum MSCI Minimum Volatility Exhibit 10 highlights the increased return potential that is available when moving down the size spectrum. The chart shows the excess returns over the market that investors could access by investing in smaller companies Schroder Investment Management Australia Limited 7

8 globally. As can be seen in the plot as you move down the size spectrum you find excess returns increase. By not fully exploiting this opportunity set investors are potentially forfeiting significant investment returns. Exhibit 10: Excess returns to a Value and Quality strategy in each size category relative to the market. Mega-Cap Large-Cap Mid-Cap Small-Cap 1% 2% 3% 4% 5% 6% 7% Annualised returns (%p.a.) Source: Global Financial Data, MSCI, QEP Schroders, Gross returns in USD Summary: Smart beta or not so smart? Smart beta may be the latest trend in the investment community but as we have discussed in this article its investment approach is far from revolutionary. Smart beta uses the ideas of style investing and packages them in an index-like framework. This approach has some benefits that Schroders has been advocating for many years, but only partially addresses the negative issues of market capitalization weighted benchmarks. These negative issues include: 1. Anti-value that forces the investor into a momentum strategy which over-weights expensive stocks and underweights cheap, 2. Concentration into sectors, countries, and/or themes that are generally expensive and risky, 3. A narrow or inefficient use of the investment universe that crowds out the contribution to returns and diversification benefits that a broader investment opportunity set provides. Smart beta strategies generally only addresses the first issue of market capitalization benchmarks, that is they tend to reduce the anti-value bias. Many of the smart beta offerings limit the investment opportunity set to those companies currently in the main market capitalization index. Of greater concern is the automated nature of smart beta investing and the lack of human oversight, meaning these indexes can lead to highly concentrated portfolios in one theme and have large changes in portfolio composition on the arbitrary rebalance date. The range of Schroders QEP Global Equity strategies address all three issues of market capitalization benchmarks when constructing an investment portfolio. They capture the advantages which smart beta provides, but overcome its limitations by overlaying active stock selection focused on company fundamentals of value and quality. Our highly diversified portfolios recognize that portfolio management is also about skillful portfolio construction, efficient implementation, and risk management, which is best done by an experienced team of investors. Schroder Investment Management Australia Limited 8

9 Disclaimer Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article. They do not necessarily reflect the opinions of Schroder Investment Management Australia Limited, ABN , AFS Licence ("Schroders") or any member of the Schroders Group and are subject to change without notice. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this article. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this article or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this article or any other person. This document does not contain, and should not be relied on as containing any investment, accounting, legal or tax advice. Third party data including MSCI data is owned by the applicable third party identified in the presentation and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments or products or any indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. The terms of the third party s specific disclaimers, if any, are set forth in the Important Information section at Schroder Investment Management Australia Limited 9

QEP Investment Team. Schroders. There s nothing smart about Smart Beta

QEP Investment Team. Schroders. There s nothing smart about Smart Beta Schroders QEP Investment Team January 2015 There s nothing smart about Smart Beta Smart Beta presents a beguiling prospect to investors: a set-and-forget investment approach that can regularly outperform

More information

Standard Risk Measures

Standard Risk Measures Standard Risk Measures June 2017 This paper provides the Standard Risk Measure for Schroder Investment Management Australia Limited s ( Schroders ) key funds. The Standard Risk Measure is based on industry

More information

Investing in Global Equities

Investing in Global Equities G l o b a l H e r i t a g e A d v a n c e d T h i n k i n g I n n o v a t i v e S o l u t i o n s Investing in Global Equities Missing Art of Portfolio Management in Smart beta Michael O Brien, Ph.D. Analyst

More information

Measuring performance for objective based funds. Chris Durack, Head of Distribution and Product, Schroder Investment Management Australia Limited

Measuring performance for objective based funds. Chris Durack, Head of Distribution and Product, Schroder Investment Management Australia Limited Schroders Measuring performance for objective based funds Chris Durack, Head of Distribution and Product, Schroder Investment Management Australia Limited The issue An objective based investment strategy

More information

Fund (Net)

Fund (Net) Overview Fund objective Key features To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices by investing in a diversified portfolio of equity and

More information

You do not need to take any action in respect of this Notice, however if you wish to respond, please see details on how to contact us set out below.

You do not need to take any action in respect of this Notice, however if you wish to respond, please see details on how to contact us set out below. Schroder Investment Management Australia Limited Australian Financial Services Licence 226473 NOTICE TO INVESTORS: 2 March 2018 Proposed changes to Schroders Funds constitutions to allow for adoption of

More information

Portfolio construction: The case for small caps. by David Wanis, Senior Portfolio Manager, Smaller Companies

Portfolio construction: The case for small caps. by David Wanis, Senior Portfolio Manager, Smaller Companies For professional investors only Schroders Portfolio construction: The case for small caps by David Wanis, Senior Portfolio Manager, Smaller Companies Looking solely at passive returns available to investors

More information

First Quarter 2018 (as of December 31, 2017) The Factor Report. What s driving factor performance?

First Quarter 2018 (as of December 31, 2017) The Factor Report. What s driving factor performance? First Quarter 2018 (as of December 31, 2017) The Factor Report What s driving factor performance? Table of Contents Page Q4 Summary..................................................................................

More information

Schroder Global Value Fund

Schroder Global Value Fund Schroder Global Value Fund Overview Portfolio objective To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices by investing in a diversified portfolio

More information

Schroder Global Value Fund (Hedged) Overview. Performance to 31 January Relative to MSCI All Country World ex Australia (Hedged)

Schroder Global Value Fund (Hedged) Overview. Performance to 31 January Relative to MSCI All Country World ex Australia (Hedged) Schroder Global Value Fund (Hedged) Overview Portfolio objective Key features To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices by investing

More information

The Future of Capital Markets The Changing Face of Asset Management

The Future of Capital Markets The Changing Face of Asset Management The Future of Capital Markets The Changing Face of Asset Management May 2012 Representing Schroders: Greg Cooper Chief Executive Officer Schroder Investment Management Australia Limited ABN 22 000 443

More information

Schroder Investment Management. Australia. Post Retirement Solutions. Greg Cooper, CEO, Schroder Investment Management Australia Ltd.

Schroder Investment Management. Australia. Post Retirement Solutions. Greg Cooper, CEO, Schroder Investment Management Australia Ltd. Schroder Investment Management Post Retirement Solutions Australia Greg Cooper, CEO, Schroder Investment Management Australia Ltd September 2011 Schroder Investment Management Australia Limited ABN 22

More information

Ted Stover, Managing Director, Research and Analytics December FactOR Fiction?

Ted Stover, Managing Director, Research and Analytics December FactOR Fiction? Ted Stover, Managing Director, Research and Analytics December 2014 FactOR Fiction? Important Legal Information FTSE is not an investment firm and this presentation is not advice about any investment activity.

More information

Schroder Investment Management Australia Bringing it all together Time to Focus on Outcomes

Schroder Investment Management Australia Bringing it all together Time to Focus on Outcomes Schroder Investment Management Australia Bringing it all together Time to Focus on Outcomes Greg Cooper, CEO, Schroder Investment Management Australia Ltd November 2011 Schroder Investment Management Australia

More information

Schroder Global Quality Fund

Schroder Global Quality Fund Q3/ Schroder Global Quality Fund Overview Portfolio objective To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices but with lower downside risks

More information

Realindex Investments Research Document

Realindex Investments Research Document Realindex Investments Research Document This document is for institutional clients, consultants, researchers and adviser use only this is not intended for retail clients. 2 Realindex Investments Realindex

More information

Specialist International Share Fund

Specialist International Share Fund Specialist International Share Fund Manager Profile January 2016 Adviser use only Specialist International Share Fund process process for this Fund is structured in the following steps: Step 1 Objectives:

More information

The Paradox of Passive. Beware of feedback loops

The Paradox of Passive. Beware of feedback loops June 2017 The Paradox of Passive. Beware of feedback loops Would the last person to leave please turn out the lights? Greg Cooper, Chief Executive Officer, Australia Executive Summary The paper focuses

More information

MSCI LOW SIZE INDEXES

MSCI LOW SIZE INDEXES MSCI LOW SIZE INDEXES msci.com Size-based investing has been an integral part of the investment process for decades. More recently, transparent and rules-based factor indexes have become widely used tools

More information

The Rise of Factor Investing

The Rise of Factor Investing Aon Retirement and Investment The Rise of Factor Investing Investing for DC savers Table of contents Key conclusions.... 3 Factor investing what is it?... 4 Where does factor investing fit in equity portfolios?....

More information

Schroder Global Core Fund Wholesale Class. Overview. Performance to 30 June Fund characteristics as at 30 June Quarterly Report June 2018

Schroder Global Core Fund Wholesale Class. Overview. Performance to 30 June Fund characteristics as at 30 June Quarterly Report June 2018 Overview Fund objective To outperform the MSCI World ex Australia Index (net dividends reinvested) before fees across a broad range of market environments with limited index-relative risk. The Fund provides

More information

Active management can add big value in small-cap equities

Active management can add big value in small-cap equities Principal Global Equities Active management can add big value in small-cap equities Brian Pattinson, CFA - Portfolio Manager Key points: Inefficiencies create opportunity Our approach to active investing

More information

Investing in Australian Small Cap Equities There s a better way

Investing in Australian Small Cap Equities There s a better way Investing in Australian Small Cap Equities There s a better way Greg Cooper, Chief Executive Officer, Australia November 2017 Executive Summary This paper explores the small cap Australian Shares market,

More information

Factor Investing & Smart Beta

Factor Investing & Smart Beta Factor Investing & Smart Beta Raina Oberoi VP, Index Applied Research MSCI 1 Outline What is Factor Investing? Minimum Volatility Index Methodology Historical Performance and Index Characteristics Risk

More information

INSIGHTS. The Factor Landscape. August rocaton.com. 2017, Rocaton Investment Advisors, LLC

INSIGHTS. The Factor Landscape. August rocaton.com. 2017, Rocaton Investment Advisors, LLC INSIGHTS The Factor Landscape August 2017 203.621.1700 2017, Rocaton Investment Advisors, LLC EXECUTIVE SUMMARY Institutional investors have shown an increased interest in factor investing. Much of the

More information

Factor-Based Investing

Factor-Based Investing Aon Hewitt Retirement and Investment Factor-Based Investing Risk. Reinsurance. Human Resources. Factor-Based Investing Summary The right equity portfolio for an investor depends on their risk and return

More information

Challenging Conventional Wisdom in Global Equities

Challenging Conventional Wisdom in Global Equities Challenging Conventional Wisdom in Global Equities Schroder Educational Series Stephen Kwa Senior Client Portfolio Manager March 2013 For Broker/Dealer Use Only. Not for use with the general public or

More information

Get active with Vanguard factor ETFs

Get active with Vanguard factor ETFs Get active with Vanguard factor ETFs Factor investing has gained attention in recent years, in part because of the rise of alternatively weighted indexes and smart-beta products. Yet factor investing has

More information

Fund (Net)

Fund (Net) Overview Fund objective Key features To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices through an actively managed blend of our Value and

More information

FTSE Diversified Factor Indexes

FTSE Diversified Factor Indexes Product overview FTSE Diversified Factor Indexes Introduction The FTSE Diversified Factor Indexes are designed to evenly distribute risk across regions and industries, and provide exposure to securities

More information

Schroder ISF* QEP Global Quality Q Investment Report

Schroder ISF* QEP Global Quality Q Investment Report For professional investors only Schroder ISF* QEP Global Quality Q2 2018 Investment Report * Schroder International Selection Fund is referred to as Schroder ISF throughout this document. Q2/2018 Schroders

More information

Scientific Beta Smart Beta Performance Report, December 2018

Scientific Beta Smart Beta Performance Report, December 2018 Introduction Scientific Beta Smart Beta Performance Report, December 2018 Scientific Beta offers smart factor indices that provide exposure to the six well-known rewarded factors (Mid Cap, Value, High

More information

Schroder Oriental Income Fund

Schroder Oriental Income Fund 1 Fund Ltd is a client of Kepler Trust Intelligence. Material produced by Kepler Trust Intelligence covering should be considered a marketing communication, and is not independent research. Please see

More information

ETF s Top 5 portfolio strategy considerations

ETF s Top 5 portfolio strategy considerations ETF s Top 5 portfolio strategy considerations ETFs have grown substantially in size, range, complexity and popularity in recent years. This presentation and paper provide the key issues and portfolio strategy

More information

FTSE Global RIC Capped Indexes

FTSE Global RIC Capped Indexes Methodology overview FTSE Global RIC Capped Indexes Helping investors meet US regulatory requirements Building blocks for investable global portfolios The FTSE Global RIC Capped Indexes are market capitalization

More information

Focusing on hedge fund volatility

Focusing on hedge fund volatility FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY NOT FOR RETAIL USE OR DISTRIBUTION Focusing on hedge fund volatility Keeping alpha with the beta November 2016 IN BRIEF Our

More information

1 month 3 mths FYTD 1 Year Fund (Net)

1 month 3 mths FYTD 1 Year Fund (Net) Overview Fund objective Key features To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices by investing in a diversified portfolio of equity and

More information

Solving for Fixed Income

Solving for Fixed Income MARKET INSIGHTS Solving for Fixed Income Using Market Insights to achieve better outcomes Q4 2016 SINCE 2004, J.P. MORGAN HAS PRODUCED MARKET INSIGHTS TO HELP INDIVIDUAL INVESTORS UNDERSTAND AND MAKE THEIR

More information

Lazard Insights. Distilling the Risks of Smart Beta. Summary. What Is Smart Beta? Paul Moghtader, CFA, Managing Director, Portfolio Manager/Analyst

Lazard Insights. Distilling the Risks of Smart Beta. Summary. What Is Smart Beta? Paul Moghtader, CFA, Managing Director, Portfolio Manager/Analyst Lazard Insights Distilling the Risks of Smart Beta Paul Moghtader, CFA, Managing Director, Portfolio Manager/Analyst Summary Smart beta strategies have become increasingly popular over the past several

More information

RBS Environmental Strategy Index

RBS Environmental Strategy Index Equity Structured Business Retail area RBS Environmental Strategy Index What is an index? An index is a tool for measuring the performance of a collection of financial assets. It may, for example, be composed

More information

Escaping the Grip of the Market Benchmarks

Escaping the Grip of the Market Benchmarks Schroders Nordic Executive Round Table 2011 Escaping the Grip of the Market Benchmarks Alan Brown, FSIP Group Chief Investment Officer March 2011 For Professional Investors or Advisors Only Not suitable

More information

Lazard Insights. China A-Shares: A New Chapter for EM Investors. Summary. John Burge, Director, Product Manager

Lazard Insights. China A-Shares: A New Chapter for EM Investors. Summary. John Burge, Director, Product Manager Lazard Insights China A-Shares: A New Chapter for EM Investors John Burge, Director, Product Manager Summary MSCI s recent announcement regarding A-share inclusion in the Emerging Markets Index opens a

More information

Smart Beta: Index Investing, Evolved

Smart Beta: Index Investing, Evolved Franklin LibertyShares TM Topic Paper November 2017 Smart Beta: Index Investing, Evolved Global investing literally and figuratively is foreign to many US investors. That s why some have taken a passive

More information

Correlation and Asset Management

Correlation and Asset Management Correlation and Asset Management Michael Mendelson Principal Ernst Schaumburg Vice President May 2017 AQR Capital Management, LLC Two Greenwich Plaza Greenwich, CT 06830 p: +1.203.742.3600 w: aqr.com 1

More information

Premium (Institutional Share Class) Simple. Performance.TM. Wellesley Hills Naples

Premium (Institutional Share Class) Simple. Performance.TM. Wellesley Hills Naples Premium (Institutional Share Class) Simple. Performance.TM Wellesley Hills Naples Our investors seek relative outperformance in bull markets and absolute performance in bear markets. The BCM strategies

More information

Sector Investing: Essential Building Blocks for Portfolio Construction

Sector Investing: Essential Building Blocks for Portfolio Construction Sector Investing: Essential Building Blocks for Portfolio Construction April 30, 2014 Brett Hammond Managing Director Head of Index Applied Research MSCI Matthew Goulet, CFA Vice President Sector Investment

More information

Regional P/E's at 31/7/

Regional P/E's at 31/7/ With the initial Brexit shock from the 23rd of June and subsequent market reverberations dying down through July, financial markets digested the prospect of further easy monetary policy by rewarding equities.

More information

LOW VOLATILITY: THE CASE FOR A STRATEGIC ALLOCATION IN A RISING RATE ENVIRONMENT

LOW VOLATILITY: THE CASE FOR A STRATEGIC ALLOCATION IN A RISING RATE ENVIRONMENT MFS White Capability Paper Series Focus Month February 212 217 Authors James C. Fallon Portfolio Manager Quantitative Solutions Christopher C. Callahan Regional Head North American Institutional R. Dino

More information

Building an Income Portfolio: Time for a New Approach?

Building an Income Portfolio: Time for a New Approach? Building an Income Portfolio: Time for a New Approach? With market volatility and low interest rates set to persist for some time, investors may have to rethink their income strategy to adapt to this new

More information

PIMCO Research Affiliates Equity (RAE) Fundamental

PIMCO Research Affiliates Equity (RAE) Fundamental PIMCO Research Affiliates Equity (RAE) Fundamental Seek to get more from your equity allocation with a systematic strategy that captures the key benefits of a passive equity approach, with the potential

More information

FEATURE ARTICLE: LISTED INFRASTRUCTURE VERSUS LISTED PROPERTY A DEFENSIVE EQUITY SHOWDOWN

FEATURE ARTICLE: LISTED INFRASTRUCTURE VERSUS LISTED PROPERTY A DEFENSIVE EQUITY SHOWDOWN JANUARY 2019 FEATURE ARTICLE: LISTED INFRASTRUCTURE VERSUS LISTED PROPERTY A DEFENSIVE EQUITY SHOWDOWN 1 Feature Article: Could Turkey s Economic Woes Cause Contagion? Introduction Listed property and

More information

Fundamental Indexation Usually, but not always, a value play July Prepared by Aon Hewitt Retirement & Investment

Fundamental Indexation Usually, but not always, a value play July Prepared by Aon Hewitt Retirement & Investment Fundamental Indexation Usually, but not always, a value play July 2017 Prepared by Aon Hewitt Retirement & Investment Summary This paper is the third in a series on alternative indexation so called smart

More information

MSCI VALUE WEIGHTED INDEXES METHODOLOGY

MSCI VALUE WEIGHTED INDEXES METHODOLOGY INDEX METHODOLOGY MSCI VALUE WEIGHTED INDEXES METHODOLOGY September 2017 SEPTEMBER 2017 CONTENTS 1 Introduction... 3 2 Index Construction Methodology... 5 2.1 Applicable Universe:... 5 2.2 Reweighting

More information

INFORMATIONAL PACKET SEPTEMBER 30, Vident International Equity Fund VIDI

INFORMATIONAL PACKET SEPTEMBER 30, Vident International Equity Fund VIDI INFORMATIONAL PACKET SEPTEMBER 30, 2017 Vident International Equity Fund VIDI INVESTMENT FRAMEWORK Apply time-tested principles to investment research Identify sources of wealth creation Utilize time-tested

More information

RBS UK Balanced Sector Index

RBS UK Balanced Sector Index RBS UK Balanced Sector Index What is an index? An index is a tool for measuring the performance of a collection of financial assets. It may, for example, be composed of shares in companies from a specific

More information

Factor Investing: Smart Beta Pursuing Alpha TM

Factor Investing: Smart Beta Pursuing Alpha TM In the spectrum of investing from passive (index based) to active management there are no shortage of considerations. Passive tends to be cheaper and should deliver returns very close to the index it tracks,

More information

Introduction to the KraneShares CICC China Leaders 100 Index ETF: A Smart Beta Approach to Investing in Mainland China s Top 100 Companies

Introduction to the KraneShares CICC China Leaders 100 Index ETF: A Smart Beta Approach to Investing in Mainland China s Top 100 Companies KFYP 12/31/2018 Introduction to the KraneShares CICC China Leaders 100 Index ETF: A Smart Beta Approach to Investing in Mainland China s Top 100 Companies info@kraneshares.com 1 Introduction to China International

More information

FTSE Global Factor Index Series

FTSE Global Factor Index Series Methodology overview FTSE Global Factor Index Series Overview The FTSE Global Factor Index Series is a family of benchmarks designed to represent the performance of specific factor characteristics. This

More information

THE VALUE FACTOR ISN'T DEAD, JUST MISAPPLIED

THE VALUE FACTOR ISN'T DEAD, JUST MISAPPLIED REPRINTED FROM POINT OF VIEW MAY 2018 THE VALUE FACTOR ISN'T DEAD, JUST MISAPPLIED CONTRARY TO POPULAR PERCEPTION, THE VALUE FACTOR HAS OUTPERFORMED OVER THE LAST DECADE. Investors are losing patience

More information

Current equity offerings for equal weighted strategies from S&P and Russell

Current equity offerings for equal weighted strategies from S&P and Russell Insights on... global indexing R u s s e l l I n t r o d u c e s N e w A p p r o a c h t o E q u a l W e i g h t e d I n d i c e s Northern Trust Global Investments Limited 50 Bank Street London E14 5NT

More information

Benchmarking & the Road to Unconstrained

Benchmarking & the Road to Unconstrained Benchmarking & the Road to Unconstrained 24 April 2012 PIA Hiten Savani Investment Director hiten.savani@fil.com +44 (0) 20 7074 5234 Agenda Two Important Trends Increasing polarisation of demand between

More information

HOW DO YOU DEFINE YOUR BORDERS? THE MODERN INDEX STRATEGY. msci.com

HOW DO YOU DEFINE YOUR BORDERS? THE MODERN INDEX STRATEGY. msci.com HOW DO YOU DEFINE YOUR BORDERS? THE MODERN INDEX STRATEGY msci.com MSCI DELIVERS THE MODERN INDEX STRATEGY The MSCI EAFE Index is designed to represent the performance of large- and mid-cap securities

More information

DJSI Diversified Family

DJSI Diversified Family DJSI Family RobecoSAM DJSI Family 05/2013 RobecoSAM AG www.sustainability-indices.com www.robecosam.com Investment Rationale The Dow Jones Sustainability Indices (DJSI ) family is an investment solution

More information

Fund (Net)

Fund (Net) Overview Fund objective Key features To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices but with lower downside risks relative to the indices.

More information

Indexes and benchmarks made simple

Indexes and benchmarks made simple Insights Indexes and benchmarks made simple The terms index and benchmark are often used synonymously, which can understandably confuse investors. In simple terms, in the world of investing, a benchmark

More information

26 Nov Executive Summary. Analyst Liang Shibin

26 Nov Executive Summary. Analyst Liang Shibin Analyst Liang Shibin +6565311516 liangsb@phillip.com.sg Executive Summary Outperformance during Recovery Phase Small caps tend to outperform during economic recovery, attributed to the factor of nimbleness

More information

Infrastructure Doesn t Need to be Actively Managed to Outperform

Infrastructure Doesn t Need to be Actively Managed to Outperform ETFS Trade idea ETF Securities The intelligent alternative May 2018 Infrastructure Doesn t Need to be Actively Managed to Outperform ETFS Global Core Infrastructure ETF (CORE) Many investors still invest

More information

Can Active Management Make a Comeback? September 2015

Can Active Management Make a Comeback? September 2015 Can Active Management Make a Comeback? September 2015 Executive Summary Recent underperformance by active U.S. managers can be easily explained and, in our view, is only temporary FACTORS MAKING FOR A

More information

Volatility reduction: How minimum variance indexes work

Volatility reduction: How minimum variance indexes work Insights Volatility reduction: How minimum variance indexes work Minimum variance indexes, which apply rules-based methodologies with the aim of minimizing an index s volatility, are popular among market

More information

2018 Summary Prospectus

2018 Summary Prospectus April 1, 2018 Global X FinTech ETF NASDAQ: FINX 2018 Summary Prospectus Before you invest, you may want to review the Fund's prospectus, which contains more information about the Fund and its risks. You

More information

Market Bulletin. A fresh take on UK equities. November In brief HOW TO PROFIT FROM THE UK ECONOMIC RECOVERY? AUTHORS

Market Bulletin. A fresh take on UK equities. November In brief HOW TO PROFIT FROM THE UK ECONOMIC RECOVERY? AUTHORS Market Bulletin November A fresh take on UK equities In brief Domestic equities play a key role in most UK investors portfolios, accounting for of their holdings on average. The UK macro environment is

More information

2018 Summary Prospectus

2018 Summary Prospectus April 1, 2018 Global X Internet of Things ETF NASDAQ: SNSR 2018 Summary Prospectus Before you invest, you may want to review the Fund's prospectus, which contains more information about the Fund and its

More information

IOOF. International Equities Portfolio NZD. Quarterly update

IOOF. International Equities Portfolio NZD. Quarterly update IOOF NZD Quarterly update For the period ended 30 September 2018 Contents Overview 2 Portfolio at glance 3 Performance 4 Asset allocation 6 Overview At IOOF, we have been helping Australians secure their

More information

MSCI Risk Weighted Indices Methodology

MSCI Risk Weighted Indices Methodology Methodology Contents Contents... 2 Section 1: Introduction... 3 Section 2: Index Construction Methodology... 4 Section 2.1: Applicable Universe... 4 Section 2.2: Reweighting Index constituents... 4 Section

More information

line of Sight Customised Beta Changing Perspectives on Passive Investing Asian Edition

line of Sight Customised Beta Changing Perspectives on Passive Investing Asian Edition line of Sight Customised Changing Perspectives on Passive Investing Asian Edition We hope you enjoy the latest presentation from Northern Trust s Line of Sight. By providing research, findings, analysis

More information

Product Review BetaShares WisdomTree Japan ETF Currency Hedged

Product Review BetaShares WisdomTree Japan ETF Currency Hedged Product Review BetaShares WisdomTree Japan ETF Currency P 1-6 ANALYST: BENJAMIN O SHEA APPROVED BY: SIMON BAIRD ISSUE DATE 19-03-2018 Key information FUND MANAGER ASSET CLASS SECTOR SUB SECTOR INVESTMENT

More information

Equities: Enhancing the Core/Satellite Framework

Equities: Enhancing the Core/Satellite Framework Equities: Enhancing the Core/Satellite Framework March 13, 2015 by Sabrina Callin, Andrew Pyne of PIMCO In a lower-returning environment, investors may need to look beyond traditional active or passive

More information

ETF Research: Understanding Smart Beta KNOW Characteristics: Finding the Right Factors Research compiled by Michael Venuto, CIO

ETF Research: Understanding Smart Beta KNOW Characteristics: Finding the Right Factors Research compiled by Michael Venuto, CIO ETF Research: Understanding Smart Beta KNOW Characteristics: Finding the Right Factors Research compiled by Michael Venuto, CIO In this paper we will explore the evolution of smart beta investing through

More information

More than simply tracking the market. A guide to passive fund management. For professional clients only

More than simply tracking the market. A guide to passive fund management. For professional clients only More than simply tracking the market A guide to passive fund management For professional clients only Over recent years, there has been a rapid growth in inflows into passive investments, such as index

More information

Don't Underestimate the Power of International Buybacks

Don't Underestimate the Power of International Buybacks Don't Underestimate the Power of International s International companies have continued to benefit from quantitative easing policies that strengthen corporate balance sheets and provide the necessary cash

More information

Revisiting Core Principles

Revisiting Core Principles FTSE RAFI All World 3000 - QSR Index (USD) As of 09/30/2017 Revisiting Core Principles The FTSE RAFI QSR Index series utilizes fundamental measures of company size (sales, cash flow, dividends, and book

More information

DIVERSIFICATION BY DESIGN

DIVERSIFICATION BY DESIGN Legg Mason US Diversified Core ETF (Ticker: UDBI) Legg Mason Developed Ex-US Diversified Core ETF (Ticker: DDBI) Legg Mason Emerging Markets Diversified Core ETF (Ticker: EDBI) DIVERSIFICATION BY DESIGN

More information

Development of the Exchange-traded Fund Market in Hong Kong

Development of the Exchange-traded Fund Market in Hong Kong Articles and Speeches 7 Development of the Exchange-traded Fund Market in Hong Kong Supervision of Markets Division 1 Executive Summary The first exchange-traded fund ("ETF") was launched in the US in

More information

IOOF Investments Reproduced with permission from Financial Planning magazine November 2016

IOOF Investments Reproduced with permission from Financial Planning magazine November 2016 IOOF Investments Reproduced with permission from Financial Planning magazine November 2016 Investing The X Factor Continued pressure on management fees and the need to generate excess returns in this low

More information

Revisiting Core Principles

Revisiting Core Principles Russell RAFI Global All Co Index (USD) As of 06/30/2017 Revisiting Core Principles The Russell RAFI Index series utilizes fundamental measures of company size (adjusted sales, retained cash flow, and dividends

More information

Exchange Traded Funds (ETFs): The New Packaged Product of Choice

Exchange Traded Funds (ETFs): The New Packaged Product of Choice Financial Institutions Profiles Series Exchange Traded Funds (ETFs): The New Packaged Product of Choice (Table of Contents) April 20, 2017 TABLE OF CONTENTS Evolution of the Exchange Traded Funds (ETFs)

More information

Reference guide Your investment options

Reference guide Your investment options Reference guide Your investment options Issued on 6 November 217 The information in this guide forms part of the Product Disclosure Statement (PDS) for smartmonday PRIME dated 6 November 217 The nuts and

More information

Schroders Global Equity Solutions for Defined Contribution

Schroders Global Equity Solutions for Defined Contribution August 2011 For professional investors and advisors only. Not suitable for retail clients. Schroders Global Equity Solutions for Defined Contribution Global Equity Solutions Active vs passive Why active

More information

Putting DC Members Front and Centre

Putting DC Members Front and Centre Aon Retirement and Investment Putting DC Members Front and Centre Refocusing DC Investment Table of contents Intoduction.... 3 Discover the member focus.... 4 Develop your equity investments to help achieve

More information

HOW DO YOU DEFINE YOUR BORDERS? THE MODERN INDEX STRATEGY. msci.com

HOW DO YOU DEFINE YOUR BORDERS? THE MODERN INDEX STRATEGY. msci.com HOW DO YOU DEFINE YOUR BORDERS? THE MODERN INDEX STRATEGY msci.com MSCI DELIVERS THE MODERN INDEX STRATEGY The MSCI EAFE Index is designed to represent the performance of large- and mid-cap securities

More information

FTSE Global Factor Index Series

FTSE Global Factor Index Series Methodology overview FTSE Global Factor Index Series Overview The FTSE Global Factor Index Series is a family of benchmarks designed to represent the performance of specific factor characteristics. This

More information

Improving Risk Adjusted Returns in Factor Investing

Improving Risk Adjusted Returns in Factor Investing ASSET MANAGEMENT Improving Risk Adjusted Returns in Factor Investing Matt Peron Executive Vice President Head of Global Equity 1 THE IMPETUS FOR FACTOR BASED INVESTING Stock selection has historically

More information

Tax-Managed SMAs: Better Than ETFs?

Tax-Managed SMAs: Better Than ETFs? June 2018 Tax-Managed SMAs: Better Than ETFs? Rey Santodomingo, CFA Managing Director of Investment Strategy Tim Atwill, PhD, CFA Head of Investment Strategy Exchange-traded funds, or ETFs, are popular

More information

IT ONLY TAKES ONE INDEX TO CAPTURE THE WORLD THE MODERN INDEX STRATEGY. msci.com

IT ONLY TAKES ONE INDEX TO CAPTURE THE WORLD THE MODERN INDEX STRATEGY. msci.com IT ONLY TAKES ONE INDEX TO CAPTURE THE WORLD THE MODERN INDEX STRATEGY msci.com MSCI DELIVERS THE MODERN INDEX STRATEGY The MSCI ACWI Index, MSCI s flagship global equity benchmark, is designed to represent

More information

Advisor Briefing Why Alternatives?

Advisor Briefing Why Alternatives? Advisor Briefing Why Alternatives? Key Ideas Alternative strategies generally seek to provide positive returns with low correlation to traditional assets, such as stocks and bonds By incorporating alternative

More information

Low Correlation Strategy Investment update to 31 March 2018

Low Correlation Strategy Investment update to 31 March 2018 The Low Correlation Strategy (LCS), managed by MLC s Alternative Strategies team, is made up of a range of diversifying alternative strategies, including hedge funds. A distinctive alternative strategy,

More information

ETFs The new wave of acceptance

ETFs The new wave of acceptance Public ETFs The new wave of acceptance March 2016 Discussion The new wave of acceptance Clear drivers of investment selection ETFs are growing in popularity among planners Australia use of ETFs continues

More information

THE CASE FOR BNKS AUGUST 2016

THE CASE FOR BNKS AUGUST 2016 AUGUST 2016 BetaShares Global Banks ETF - Currency Hedged (ASX: BNKS) Safe as houses? The case for diversifying banking sector exposure through the BetaShares Global Banks ETF Currency Hedged (ASX Code:

More information

Harbour Asset Management New Zealand Equity Advanced Beta Fund FAQ S

Harbour Asset Management New Zealand Equity Advanced Beta Fund FAQ S Harbour Asset Management New Zealand Equity Advanced Beta Fund FAQ S January 2015 ContactUs@harbourasset.co.nz +64 4 460 8309 What is Advanced Beta? The name Advanced Beta is often interchanged with terms

More information

Small Cap Allocation for Japanese Investors December 2007

Small Cap Allocation for Japanese Investors December 2007 Small Cap Allocation for Japanese Investors Introduction For many years, the equity allocation of Japanese institutional investors has typically been split between domestic and international assets and

More information